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Edited version of your private ruling
Authorisation Number: 1012502873309
Ruling
Subject : Assessable income
Question
Are lease payments for the use of part of your property to host another entity's equipment taxable as ordinary income?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 April 2012
Relevant facts
You were approached by an entity and entered into a medium-term site lease agreement.
The lease is for an area of your private property and houses equipment owned by the entity.
You receive an annual lease payment for the use of your land for this purpose, which includes periodical access to the property.
The term of the lease may be extended by the lessee.
You advise that the purpose of the lease payments is to 'partially compensate' you for the devaluation of your property.
You did not have an intention when you purchased the property to make money from it.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Ordinary income has generally been held to include 3 categories, namely income from rendering personal services, income from property and income from carrying on a business.
Other characteristics of income that have evolved from case law include receipts that:
· Are earned
· Are relied upon, and
· Have an element of periodicity, recurrence or regularity.
In your case the annual payments paid to you for the use of your land to house the equipment are rental payments made pursuant to a lease agreement. They are expected (and perhaps relied upon) as your entitlement to the payment arises under the site lease agreement. They also have an element of recurrence and regularity as they are paid annually.
Even though the payments may in part compensate you for the diminution of property value caused by the equipment, the payments are nonetheless lease rental payments and have the character of income.
Accordingly, the annual payments received by you are considered ordinary income and are assessable under section 6-5(2) of the ITAA 1997. You must include your share of the full amount of rent you earn in your tax return.